We're almost out of time to meet Treasury's October 17 deadline on raising the debt ceiling

The good news today for those of us who think risking a U.S. default on government debt is a bad idea comes in signs of cracks in the united front against raising the debt ceiling unless the Obama administration agrees to defund the Affordable Care Act, “reform” Social Security, rewrite the tax code and more.

Conservative political action committees Heritage Action and Freedom Works have come out in separate interviews saying, it seems, that they favor raising the debt limit without conditions while keeping up the fight by continuing a shutdown of the federal government.

There remains a considerable number of extremely conservative Republicans in the House who show no signs of backing off from their belief that risking default is 1) good policy, 2) good for the country, and/or 3) no big deal anyway. I remain convinced that it will take a big sell off on Wall Street to move any of these votes toward support of a clean debt ceiling extension. And I’m not convinced that even that will rock the conviction of the true believers in this group.

And I wouldn’t get too excited about the seeming change of opinion by Heritage Action or Freedom works. It does signal that some Republicans in the House of Representatives are starting to show some doubts about the wisdom of the current all or nothing stance but it doesn’t indicate that there’s any agreement on what comes next. Maybe a bill to raise the debt ceiling will get voted out of the Senate in the next few days—first test likely in a Saturday vote to on a filibuster-- and maybe that will form the basis of the debt ceiling vote in the House before the Treasury’s October 17 deadline. But I think before we get to that point we’ve got to go through days yet of Republican arguments about potential face-saving amendments to any debt ceiling bill.

My worry, of course, is that we’re almost out of time for Congress to act early enough to avoid the October 17 deadline. And while it’s possible, and perhaps even correct, to argue that Treasury won’t really run out of money to pay the government’s bills until October 24 or October 31, the uncertainty of the situation makes me nervously watching to see what might go wrong—and looking for ways to minimize my exposure to those possibilities.

Parts of the financial markets are apparently just a nervous as I am and have made their own move to safety. This is especially obvious at the very short end of the Treasury market: Yesterday the Treasury sold new one-month Treasury bills at a yield of 35 basis points; that’s a huge jump from the 12 basis point yield at last week’s auction of this short-term debt. (100 basis points equal one percentage point.)

The reason for the jump in yield is pretty clear. Money market managers have sold off much of their holdings at this end of the market and aren’t buying more in an effort to protect themselves against any possible short-term disruption of the Treasury market. Fidelity, for example, which manages $430 billion in money market funds, last week decided to sell all of its positions in government debt that matures in the three week window that begins on October 18. That follows on a decision last month to stop buying debt that matures in that period.